How's SCSS taxed on withdrawal?

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  1. Jeswant

    Jeswant New Member

    Re: Senior Citizen Savings Scheme (SCSS), it's quite clear that all interest will be taxed and 1.5%/1% will be chargeable for withdrawal after one year/thereafter. It's also clear that "Investment under this scheme qualifies for the benefit of Section 80C of the Income Tax Act, 1961 from 1.4.2007" ( I recall reading that withdrawals before 5 years will have to be added to income (in the year of withdrawal) though it wasn't clear if only the component for which s. 80c deduction is claimed has to be added to income. Can anyone clarify?
  2. V K Khanna

    V K Khanna Active Member

    Before looking into your query, let us first examine the features of the scheme:-

    1). Though the scheme provides for maximum deposit of Rs 15 lakhs, the deduction under Sec 80C is limited to Rs 1.50 lakh only.

    2) The scheme offers a healthy rate of interest at 9.3% pa for a term of 5 years deposit. Hence, in the event of premature withdrawal, a penalty of 1.5/1 % of deposit, on withdrawal from the scheme after 1/2 years, has been laid down.

    3). Interest earned under the scheme is transferred to your saving account on quarterly basis and you are free to utilise the same as you wish. This means that the interest earned is taxable in your hands like other deposits with the bank.

    From the foregoing, it will be clear that in case of premature withdrawal from the scheme, deduction claimed u/S 80C will only be added with your income and offered to tax and not the whole investment.

    As regards the interest part, the interest income on which tax has already been paid on annual basis in the return of income, will be excluded and only that part of interest income which has not been offered to tax will be added with your income and taxed in your hands.
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